Chris Devonshire-Ellis:Bribery More Likely Among Overseas Chinese Staff

March 29, 2010 Posted by Chris Devonshire-Ellis Reading Time: 3 minutes

Op-Ed Commentary: Chris Devonshire-Ellis

Mar. 29 – In the aftermath of the ten-year jail sentence handed down to Rio Tinto’s Chinese staff for bribery, much has to be learnt from the pressures placed upon ethnic Chinese employees who are now nationals of other countries. In a case that has uncovered significant bribes being paid to Rio Tinto’s chief negotiator, Stern Hu, the spotlight must fall on the pressures faced in China by ethnic Chinese conducting business under the wings of a multinational corporation and the umbrella of a foreign passport.

On occasions regrettably too numerous to count, my practice has uncovered fraud in China due diligence cases that has been conducted not by domestic Chinese staff, but by overseas Chinese. It is true to say that in many cases in China, it is foreign businessmen who act poorly in the way in which they behave or run their businesses. In this regard, perhaps not surprisingly, the Western media ignores the failures of Western executives and places blame, whenever something illicit occurs, on local Chinese. In my experience, this is often a biased approach. In running two businesses in China for a total of 28 years, it is foreign executives that have more often behaved badly.

When examining the situation and the media pressure building up around the Rio Tinto case, it is apparent that many in the West initially blamed China for the incident. However, it now appears certain that the employees were involved in bribery. Here, the perils of employing overseas Chinese and putting them in charge of operations based in China, again in my experience, is often fraught with problems. It is, to some extent, understandable.

Being ethnically and often culturally knowledgeable has of course its advantages; ease of communication being one of them. However, often with that goes an ideal when such executives are faced with Chinese businessmen that “We are all Chinese together,” and this can place the ethnic Chinese executive under intense pressure. Being unable to talk to their bosses who expect them to solve problems, not create them, such individuals can find themselves squeezed between performing their function for their company, yet keeping their Chinese connections and guanxi operational. Too often, the overseas Chinese executive is left on their own to wrestle with serious matters of conscience, temptation and pressure to conform. Tragically, otherwise excellent employees can be corrupted as a result. In the case of Stern Hu, it has destroyed his career and made Rio Tinto as a company appear potentially morally dubious.

Unfortunately, I have seen the same scenario time and again when called in to deal with due diligence cases, or to look at anomalies of businesses operating in China:

Ethnic Chinese executive joins business
Considered a native of his adopted country possessing an overseas passport
Fast-tracked to head up business opportunities in China
Becomes corrupted (usually through intense temptation, enhanced by language capabilities and ability to cover up at head office)
Financial / contract behavior start to show anomalies
Investigations reveal fraud
Chinese executive confronted
Foreign invested business is damaged (on some occasions, terminally)

The lessons are clear. Firstly, that honesty is not the sole preserve of foreign executives. Many doing business in China are opportunists and corrupt themselves, yet are only too happy to point the fingers at others. Secondly, that the Chinese are no more or less corrupt than anybody else. But thirdly, the human resources departments of multinationals conducting business in China have not, on many occasions, been providing enough emotional, intellectual and moral support to their ethnic Chinese executives in China. The case of Stern Hu may yet have been avoidable if he had felt able to discuss the situation concerning bribes being offered to a superior within the business. Obviously that was not the case. Multinational companies may wish to take stock of the support they actually provide to such executives, who bridge both the gaps between East and West, but face double the amount of pressures in doing so. Human resources directors would do well to take note. The likes of Stern Hu’s behavioral patterns could be weeded out given better head office support.

Chris Devonshire-Ellis is the principal and founding partner of Dezan Shira & Associates, establishing the firm’s China practice in 1992. The firm now has 10 offices in China. For advice over China strategy, trade, investment, legal and tax matters please contact the firm at info@dezshira.com. The firm’s brochure may be downloaded here. Chris also contributes to India Briefing , Vietnam Briefing , Asia Briefing and 2point6billion